Court rules CarMax's generic used car inspection reports violate California law

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This article was originally published in the Northern California Record, on November 6, 2016.

by Tara Mapes

SAN FRANCISCO -- California's Ninth Circuit Court reversed a district court’s summary judgment in favor of CarMax Auto Superstores LLC (CarMax) and remanded with instructions to enter summary judgment for plaintiff Travis Gonzales. Gonzales sued CarMax after experiencing problems with a vehicle he purchased at one of its lots.

Gonzalez filed the lawsuit against CarMax under the Consumer Legal Remedies Act and Unfair Competition Law. In his lawsuit, Gonzalez alleged he purchased the vehicle after hearing radio and online advertisements regarding the benefits of purchasing a "certified” vehicle that had passed CarMax’s "rigorous 125-point certification inspection." According to Gonzales, he was provided with a pre-printed “CarMax Quality Inspected Certificate” that generally listed vehicle components that were inspected.

Shortly after purchasing his vehicle, an Infiniti, Gonzales experienced issues with it. He contended that the brake pads needed to be replaced, he heard a clicking noise in the engine, the windows failed to work and the check-engine light, along with other dashboard lights, were consistently illuminated.

Gonzales said he would have either paid less or not purchased the car had CarMax not misrepresented the vehicle as having been fully inspected.

Christian Scali, founder and managing partner with Scali Law Firm that specializes in automotive litigation, told the Northern California Record that under the law, a California consumer does not have an obligation to ask for more information regarding an inspection.

"Once information is provided to the consumer, however, that consumer is arguably on ‘inquiry notice’ of something amiss with the vehicle," Scali told the Northern California Record. "If the customer chooses not to make further inquiry after being put on inquiry notice, that consumer may be prohibited from later complaining about something amiss that the dealer disclosed.”

The trial court ruled CarMax’s inspection reports were sufficient. Upon appeal, the Ninth District Court disagreed that a preprinted certificate adequately informed consumers of the inspection. It noted its decision was based on CarMax’s alleged violations of California Vehicle Code that requires a car dealer to provide consumers with a “completed inspection report” prior to the sale of any “certified” used vehicle.

Scali said this case is open to interpretation.

“The Ninth Circuit’s views on what constitutes a ‘complete inspection report’ varied from that of the district courts," he said. "In the Ninth Circuit’s view, a ‘complete inspection report’ includes not just that the vehicle was inspected and either passed or failed that inspection, but the certification standards and actual condition of the vehicle, i.e., what was done to that vehicle after the first inspection that resulted in its passing.”

The court found CarMax’s report failed to indicate the actual results of an inspection to a consumer in a manner that conveyed the condition of individual car components and ruled CarMax’s certificate to not be a “completed inspection report” under California law. The court declared CarMax’s generic list of car parts inspected failed to inform consumers of the material results of the inspection.

Scali said CarMax’s defense could have benefitted from another ruling in Brooks vs. CarMax Auto Superstores California LLC; however, the ruling was unpublished during the pendency of the appeal.

“The Brooks court held that CarMax’s inspection report was a ‘complete inspection report’ under the statute. CarMax didn’t miss a defense; it was deprived of one," Scali said.

The court said in its ruling, “If CarMax’s generic, and ultimately uninformative, list of components inspected were considered a 'completed inspection report,' [the law’s] effectiveness in promoting transparency in the sale of certified cars would be substantially diminished.”

Scali said administratively it would be burdensome for a dealer to provide a consumer with all of the technical requirements for passing the certification inspection. He said it could take more time for the dealership to complete and produce one, which would affect commerce.

“These ‘certified pre-owned’ certification programs are generally created by the manufacturers, not the dealers. The manufacturers may not provide this detailed information on their inspection reports as part of their programs. However, the question becomes how much information is enough? Is the repair order that is generated to conduct the work on the vehicle after its first inspection required for a ‘complete inspection report’? It contains the parts/systems inspected, the results of the inspection, the problems found, their causes and what was done to fix it,” Scali said.

He said several versions of a repair order are generated, including some that contain the notes of the technician who inspected and conducted the repair.

“Should all such versions be provided to the customer?” Scali said. “The Ninth Circuit’s ruling raises more questions than it answers and provides fertile ground for consumer advocates to continue to argue that an otherwise compliant-minded dealership failed to obey the law. This is the real danger of the court’s interpretation."

Scali added that CarMax can choose to stop advertising that it offers "certified" and "125-point inspections," but that has additional adverse effects on its status.

“It will lose its status as exempt from California’s Buy Here Pay Here dealer laws. Currently, under vehicle code section 241.1, CarMax is exempt from the advertising and warranty requirements of used vehicle dealers, in part because it ‘certifies’ 100 percent of its inventory under vehicle code section 11713.18," he said. "If CarMax stops certifying its inventory, it will have to affix a label to each car denoting its ‘reasonable market value’ under vehicle code section 11950 and must provide a 30 day/1,000 mile warranty on each vehicle under civil code section 1795.1."